If you borrowed money through a loan to purchase your property and there is a mortgage (or deed of trust) on the property, you should consult the lender before you transfer your ownership interest in the property. In almost all situations the lender must consent to or at least be notified before any transfer in the ownership interest. See section below on loans and mortgages.
Under all circumstances, you are responsible to pay the lender the full amount of the loan.
- If you continue to own the property, you must continue to make all your regular payments to the lender.
- If you sell or transfer the property, you will need to pay the lender the full amount of the loan and any other charges due under the loan documents.
Consequences of Non-Payment
If you do not make these payments to the lender, the loan will be in default and the lender can take action to possess and sell the real property. This is known as a foreclosure by the lender. There may be some protections under certain state laws. A real estate attorney or other real estate professional in your local area should know the laws that apply. If you think there is a chance you will not be able to repay your loan, you should reach out for help in your state to understand the full risks.
Forfeiting a Property with a Loan
If your property is worth less than the loan payoff and you can’t make the payments, you might consider giving the property to the lender. You may still owe the lender the remaining amount of the payoff unless the lender agrees otherwise.
Selling a Property with a Loan
If the value of the property is worth more than the loan, you may be able to sell the property. You would then pay the lender from the sale and keep any remaining funds.
Other Considerations for Handling Properties with Loans
- Unpaid property taxes must be paid;
- If there is a co-owner, they will likely need to consent to any actions that affect the loan and mortgage;
- A limited power of attorney can be given to someone so that they can work with the lender and take steps to avoid a foreclosure; and
- If possible, speak with your lender to try and put a feasible payment plan in place. Document and keep copies of all communications between you and the lender.
- Update the lender with any changes to your contact information.
- Know your rights. Speak with an attorney about what rights you have under the loan agreement or mortgage documents.